3 October, 2019
The Finance Minister Nirmala Sitharaman, in her speech during the Union Budget 2019-2020, spoke about the proposed reform measures which the government would be undertaking to promote the housing sector. She correctly noted that the current rental laws are archaic as they do not address the relationship between the lessor and the lessee realistically and fairly. Accordingly, the Ministry of Housing and Urban Affairs has drafted the Model Tenancy Act, 2019 (“Proposed Model Act“) to serve as a model law which has been circulated for views/comments from the states and union territories. I have, in this article, highlighted some of the salient features of this Proposed Model Act as well as some broad comments on the same.
The Key highlights of the Proposed Model Act:
The aim of Proposed Model Act is said to be to balance the interests of landowner and tenant and to create an accountable and transparent environment for renting of premises in an efficient manner. Accordingly, the Proposed Model Act has the following salient features:
1. The definition of `premises’ includes residential and commercial premises but excludes premises earmarked for industrial use.
2. Under the Proposed Model Act, the renting-out of the premises has to be under an agreement in writing and filed with the Rent Authority by the landowner and tenant, in the form specified within two months from the date of the agreement. This filing shall be taken as evidence for matters relating to the tenancy.
3. In the event that the tenant fails to vacate the premises once the lease has expired, the tenancy will revert to a month-to-month tenancy for a period of six months. After this period, the tenant is liable to pay twice the rent for two months and four times the monthly rent thereafter, till the time they vacate the premises;
4. Whilst the amount of security deposit that is payable under the tenancy is said to be as per the terms of the agreement, for residential premises there is a cap of two months rent that can be charged by way of security deposit. On the other hand, for non-residential premises, there is no cap but instead there is a minimum of one month’s rent which would need to be charged as security deposit;
5. The landlord is not permitted to increase the rent during the tenancy period, unless the amount or the method to calculate the proposed increase is stated in the tenancy agreement;
6. The concept of a `property manager’ has now been included in the Proposed Model Act’ with obligations and responsibilities of the property manager being elaborated on.
7. The Proposed Model Act, has also introduced the mechanism of addressing the disputes and grievances through a specific Rent Authority, Rent Court and Rent Tribunal in the hope of providing for an expeditious conclusion of such disputes;
8. The State/Union Territories may make rules to carry out provisions of the Proposed Model Act and the existing rent control act applicable to State/Union Territories would stand repealed from the date of notification of Proposed Model Act.
Observations:
The Proposed Model Act does appear to go some way to take into account the current market conditions in relation to the renting and leasing of premises and clearly setting out the rights and obligations of the landowner, tenant and even the project manager, if one is appointed. It has also set out a mechanism to ensure the speedy disposal of disputes, by introducing Rent Authority, Rent Court and Rent Tribunal.
One concern that may be raised by landlords proposing to lease their residential premises is the cap on the amount of security deposit that may be taken under the agreement with the tenant. Generally, the security deposit is meant to cover the cost of any damages caused to the premises by the tenant as well as failure by the tenant to vacate the premises and capping this would not be viewed positively by landlords. Additionally, the Proposed Model Act only covers tenancy and lease of the premises and is silent on leave and license arrangements. This may be an issue that may be left to the states, such as Maharashtra which had provided for the concept of a leave and license and the obligation of the landlord to register such agreements covered under the Maharashtra Rent Control Act, 1999.
Further, one will need to consider the confusion that may be caused by the implementation of the Proposed Model Act in the states where specific rent control acts are already being followed. For example, Maharashtra has a well established rent control act, which has certain provisions such as exemption for companies that have a paid-up a capital of more than one crore as well as other groups of entities who are exempted from the provisions of the rent control act.
Given that the Proposed Model Act is currently only a template proposed for consideration, one will have to wait for further amendments/modifications, if any, which the states may suggest and also, the rules which each state may frame.
For further information, please contact:
Priya Parab, AZB & Partners
priya.parab@azbpartners.com
